The Discounting Dilemma

How to Use Two Discount Rates in a Regulatory Impact Analysis

August 06, 2020

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Abstract

OMB’s guidance on regulatory analysis directs agencies to evaluate regulatory benefits and costs using two standard discount rates, 3 percent and 7 percent, but it gives little insight on how to use them other than to try both.  The initial draft of OMB’s first such guidance, published in 1988, did include specific instructions on how to use two rates simultaneously, but those instructions were deleted in the editing process.  This Regulatory Insight recreates those original instructions, and explains how they help to resolve many misunderstandings about discounting that have developed since then.